Prices dipped once again, with Brent crude futures dropping 42 cents, or 0.5%, to settle at $82.54 a barrel, while US West Texas Intermediate (WTI) crude futures fell 36 cents, or 0.4%, to $78.77 a barrel.
The market mood was also dampened by the prospect that the US Federal Reserve might defer its anticipated interest rate cut to the second half of the year, an event which strong US economic data on Wednesday had reinforced. Most of the 40 foreign exchange and interest rate strategists paneled that the US central bank had called time on rate cuts following its July meeting – despite widely held expectations of another reduction in the coming months. A stronger dollar tends to deter buyers of dollar-dominated raw materials such as oil from using their poorly-performing currencies.
On Wednesday, the words of Federal Reserve Chair Jerome Powell on inflation added to the question marks, noting that even though the central bank had made good progress, we have a ways to go before we’re sure we’re achieving the goal of inflation. Still, Wall Street generally expects that the Fed will start to raise its benchmark interest rate next year, signaling action on the economy.
There was some good news, though. China’s import and export numbers gave the world reason to believe that a reversal could soon occur in the global trade picture. Import data for the first two months of 2024 showed increased imports of 5.1 percent over the same period last year, reaching around 10.74 million barrels per day (bpd). much of the surge could be seen in crude purchases to meet fuel needs during the Lunar New Year holiday.
Chinese data pointing to an improvement in the trade balance for the world’s largest oil importer gave analysts such as Tina Teng in Auckland reason to be optimistic about the oil market’s demand backdrop. Nonetheless, she warned that risk-off sentiment gripped the financial markets after stocks tumbled on Wall Street.
On Wednesday, prices for Brent and WTI increased with the sixth straight weekly increase in crude inventories that rose 1.4 million barrels last week while gasoline and distillate stocks declined more sharply than expected, EIA data showed.
The complex interaction between economic indicators, geopolitics, and market psychology means that oil prices remain volatile. The market responds to any developments that indicate a change in the balance between supply and demand.
Source: Noah Browning, Reuters March 7, 2024
